Wednesday, October 8, 2014

Until only recently, the South Indian real estate market was known as highly price sensitive, with buyers primarily focused on the affordability quotient. Developers had to adopt a strategy to entice potential end-users and investors by offering their products in the right price band. However, with more and more foreign companies establishing their back offices in prime locations of South Indian cities and offering power jobs to the local populations, the South Indian economy has witnessed rapid growth over the last few years. This has visibly reflected on their real estate markets, as well.

Of late, the most important South Indian real estate markets - Bangalore, Chennai, Hyderabad and Kochi, have been faring very well. This dynamic was evident even when the nation was going through a phase of low sentiments. While the burgeoning IT sector in these cities is the main reason behind the real estate boom in these cities, some of them also have a rapidly strengthening industrial base which is further augmenting real estate demand.

Bangalore

The commercial office leasing trends in Bangalore clearly reflect that the city is topping all others in terms of space and job creation. IT, ITeS and retail are driving employment creation in the city. Bangalore is expanding in all directions, and with most phases of the Metro on track in terms of deployment, Bangalore has emerged as one of the best investment destinations for affordable, affordable luxury and luxury segment housing.

North Bangalore has seen residential prices doubling in the last 4-6 years, and many other pockets have witnessed good appreciation as well. Brigade Gateway, one of the best integrated townships in Bangalore featuring the World Trade Centre, a mall and a 5 Star hotel, was launched at a price of Rs.5,000/sq. ft. about 4-5 years back and is now transacting at above Rs. 10,000/ sq.ft.

There are numerous such examples wherein reputed developers and landmark developments have been instrumental in prices doubling and going even higher in the last 4-6 years. The finest developments in Whitefield by Sobha, Brigade, Prestige, Total Environment and Chaitanaya have practically doubled in terms of capital values in the last 5 years.

Chennai

Residential property prices in Chennai have escalated the fastest among the cities in India, witnessing an appreciation of almost three times of what they were in 2007. However, Chennai still faces supply constraints in its prime locations in terms of new and organised development.

Traditionally, buyers in Chennai were hesitant to move to the suburbs, as the options available in the key pockets were highly priced. Very similar to the cities like South Mumbai, Delhi and Kolkata, buyers in Chennai are very particular about address and pin code value. As the city is in expansion mode with the rapid development in Chennai’s social and physical infrastructure, the suburbs and extended suburbs such as Velacherry, Peringudi and OMR belt are witnessing an upsurge in its property prices with corresponding demand.

Areas like Ayanavaram, Virugambakkam, Nungambakkam and Ashok Nagar have recorded the maximum appreciation. With limited supply and few organized developers in Annanagar and Kilpauk, end-users and investors are finding prices attractive in these neighbouring areas. With noted developers such as Chaitanaya, Vijayshanti and Arihant-Unitech active in these areas, there is a steady increase in demand.

The Central business district of Chennai, Nungambakkam, has managed to maintain the highest appreciation values with only few organized developers active in the area. However, with the Metro rail route passing through Ashok Nagar and with host of reputed and local developers’ active along the belt, a considerable amount of demand has shifted to this micro-market.

This is because of the presence of large commercial and entertainment-shopping establishments such as Phoenix and Forum and the availability of adequate social and physical infrastructure such as quality educational institutions and hospitals have proven beneficial in garnering demand from end-users and investors.

The three key growth drivers of IT / ITES, automobile manufacturing and education sector are instrumental in driving the job creation in Chennai. The price appreciation in specific pockets forecasts to be extremely good over the next 12-18 months. Some of the projects which are garnering attention from end-users and investors are Falling Waters in Peringudi, Oceanique on ECR Road, Embassy Residency and Pristine Acres in OMR.

Hyderabad

Taking in consideration the current prevailing prices, developers have very little room for profit. Properties here are value buys in all respects, and one cannot go wrong with buying into quality projects at the current price levels with an investment horizon of 3-5 year. The Telangana agitation was the primary reason for the stagnation of prices in Hyderabad.

While Hyderabad's average prices may reflect stagnation, there are multiple exemptions to this rule. A few such instances are Jayabheri’s Orange County, which has seen 33% absolute appreciation within a horizon span of 3-4 years and Jayabheri’s Silicon County, which has almost doubled in the last four years. Aparna’s Sarovar Grande has seen about 43% absolute appreciations in the last 12-15 months.

Good projects by reputed developers have shown very robust capital appreciation in the city. Though Bangalore and Chennai has clocked better appreciation values, Hyderabad by no means has lacked appreciation growth - it has merely been selective.

The socio-political and economic scenario is now far more favourable for the real estate sector. Hyderabad's real estate market is likely to grow at a relatively faster pace to give renewed competition to cities like Bangalore, Chennai and Kochi. In the mid-to-long term, investor confidence in Hyderabad real estate will emerge in force once more. Companies like Facebook, Google and Apple have long-standing plans to expand their bases in Hyderabad - a factor which will work in favour of faster appreciation.

One of the hottest emerging locations is Vijaywada, where land prices have increased by almost 300% because of speculation. This renders Vijaywada unviable for residential projects over the short term, but a price correction from the speculative levels in anticipated over the next one-and-a-half years. After that, many more corporates will move into Vijaywada, thereby boosting residential demand as well.

Kochi

Kochi is an emerging metropolis where modern urban lifestyles are merging with the city's traditional framework. During its initial realty boom, Kochi grew exponentially, with more people migrating to the city and consuming even the outlying catchments of Kakkanad, Palarivattom, Vytilla, Edappally and Kadavanthra.

Development of IT/ITES projects such as the Kochi Smart City and initiatives to channelize traffic and improve connectivity - such as the Mobility Hub at Vytilla - have fuelled the current real estate boom, with more and more developers cashing in.

The days when builders in Kochi focused only on affluent buyers are over. The Kochi residential real estate market is now replete with affordable housing projects, which account for about 60% of the total housing development in the city. The soaring land prices have made it difficult to own or build independent houses, which were once the most popular configuration in Kochi. There is an increased demand from the emerging mid-income segment that wants homes packed with amenities at affordable prices.

The demand for budget housing is so strong that supply has penetrated even the poshest areas. The prime localities that offer luxury multi-storey apartments, such as Marine Drive, are seeing the arrival of affordable and mid-income housing projects in the vicinity to the more expensive waterfront apartments and villas.

While the global recession in 2009-'10 impacted all markets across the country, there was no decrease in Kochi residential real estate between 2012-13. Kochi is an investor market with many investments coming in from the Gulf via NRIs. In most cases, flats in new projects are sold out to the tune of 80% very quickly, but less than 20% would be actually occupied.

Luxury apartments on Marine Drive were quoted at Rs. 3800-4000/sq.ft in 2008-'09. Now, the rates for premium apartments in this area have almost doubled. Mid-range apartments by local developers are usually sold out by upto 90% of the inventory over a period of 1.5-2 years. The apartments in non-prime areas need to sell at price tags of upto Rs. 70 lakh.By Juggy Marwaha, Managing Director - South, JLL India